Why Study Economics?

Fascinating field of study

Economics is fascinating because of its breadth. Like the psychologist, the economist is concerned with individual behavior. Like the sociologist the economist is concerned with the behavior of groups. Like the political scientist, the economist is concerned about how the laws and policies generated by legal and political institutions affect our lives. Like the historian, the economist is concerned about how the past affects and gives context to the present. Like a natural scientist, the economist seeks an understanding of how the resources and processes of the natural world affect humans. Like the mathematician, the economist uses quantitative tools to describe and analyze. There is little entirely outside the scope of economics.

Yet, economics does have a focus. The fundamental economic fact is that resources are scarce. Natural resources, our time, and our money are all scarce relative to their potential uses. Economics is a field of study focusing on the implications of resource scarcity. The fundamental implication of scarcity is that it forces people to make choices about how to “allocate” the scarce resource. Economics is broad in scope because economic concepts apply to any situation where a choice is made. Examples include:

choices made by individuals to work, to play, to buy and to sell;

choices made by firms to purchase productive inputs (labor, capital and raw materials), to carry inventories, to move to a new location, to develop new technology, and to sell products;

choices made by governments to tax, to spend, to change laws, and to regulate.

In addition to a focus on choice, economics has also had a tradition of focusing on the processes through which individuals and groups interact and affect each other. In 1890, Alfred Marshall defined economics as “a study of mankind in the ordinary business of life.” Economists develop models of social processes and use these to forecast the outcomes experienced by those involved.

Wide variety of employment opportunities

The general applicability of economics is one reason why it has become the most popular major at some of the nation’s most elite colleges and universities—Stanford, Harvard, Princeton, Columbia, Yale, University of Pennsylvania, and University of Chicago. Economics training enhances logical reasoning and analytical skills, skills that are useful in a wide variety of occupational fields, including general business, government, law, securities, banking, insurance, and real estate. A bachelor's degree in economics is generally not sufficient to obtain a position as an economist or economic analyst, but is excellent preparation for a wide variety of entry-level positions in business or government.

Strong earnings potential

According to a 1997 salary survey by the National Association of Colleges and Employers, persons with a bachelor's degree in economics received offers averaging $31,300 a year. A 1990 survey by the US Department of Commerce examined how economics compares with other majors. That study indicated that holders of an economics degree averaged $2,528 per month in earnings. The average degree yielded $2,116, and the average business degree (e.g. management) yielded $2,447. The mean annual salary for economists reported by the U.S. Bureau of Labor Statistics “1999 National Occupational Employment and Wage Estimates” was $61,550. The National Association of Business Economists reported a 1998 median salary for business economics professionals including all degree levels of $80,000. And, according to NABE, the 1996 median salary for business economists with a bachelor’s degree was $60,000. The median salary for mid-career individuals with bachelor’s degrees in economics is approximately $60,000 (adjusted for inflation), based on a 1993 survey of salaries of individuals aged 35-44 with bachelors degrees as their highest degree. The median salaries for men and women are almost identical. Women with bachelor’s degrees in economics have higher median earnings than women with bachelor’s degrees in any other field. The median salary for men with economics degrees is exceeded only by engineering, mathematics and computer science, pharmacy, and physics. The reported salaries for economics degree holders are approximately equal to those with degrees in accounting and exceed those for all other business, social science, and science majors, and for all majors in the humanities.

Good preparation for graduate school or law school

Because economics is broad, economics training enhances a variety of skills, including

Critical thinking

Deductive and inductive reasoning

Research ability

Quantitative communication and analysis

Written communication

People trained in economics are trained to recognize the costs and benefits associated with alternative choices. In addition to this type of critical thinking, deductive and inductive reasoning skills are developed in the process of examining “cause and effect” economic relationships. Economic analyses involve data collection, a literature review, theoretical analysis, quantitative analysis, or some combination of these. The results obtained from economic research are usually communicated in writing, with the form of the write up depending upon the intended audience.

In its November 30, 1998 issue, the Wall Street Journal reported that “Out of a possible LSAT score of 180, economics majors average about 155, ranking the highest in a study of the most common majors for law school.” This is evidence that economics training provides a good foundation for those students who desire to go on to law school. Moreover, an economics degree is more marketable than any other degree chosen by those who attend law school. (See the next section for a discussion of job opportunities.) This is something to consider, given that many who intend to go to law school end up not going, many who go end up not finishing, and many who finish end up not earning a high income.

Graduate school in economics is another option. Most people working as professional economists or economic analysts have a graduate degree—either a master’s degree or Ph.D. For undergraduates considering the pursuit of a graduate degree in economics, quantitative training is more important.